Alabama hospitals are facing an ‘existential crisis’

Don Williamson, president and CEO of the Alabama Hospital Association

Hospitals in Alabama suffered heavy losses in 2022, and they see a grim outlook for 2023.

Alabama hospital officials say they need the state to distribute COVID-19 recovery funds to hospitals, or some facilities may not make it until the end of the year. The Alabama Hospital Association held a news conference Thursday to draw attention to the gravity of the threat.

“Alabama hospitals face an existential crisis in terms of survival,” said Donald Williamson, president and CEO of the Alabama Hospital Association.

The state has money from the American Rescue Plan Act, and Williamson said hospitals need to get some of that aid simply so they can make payroll.

“2023 looks as dire as 2022,” Williamson said. “We frankly will have hospitals not survive 2023 without some help.”

‘No relief in sight’

Hospitals across the country have struggled badly last year. In fact, hospitals suffered their worst financial year of the pandemic in 2022, according to a report by Kaufman Hall, a healthcare consulting firm. Hospitals wrestled with higher expenses, reduced volume, and the COVID-19 relief aid that kept hospitals afloat earlier in the pandemic has largely dried up, and there aren’t great prospects for more relief in Washington.

However, hospitals in Alabama have fared worse than the rest of the nation, according to a Kaufman Hall report focused on the state’s hospitals. Unlike some other states, Alabama didn’t accept federal funding to expand Medicaid.

“Alabama faced even more severe declines than the nation as a whole,” said Erik Swanson, senior vice president of Kaufman Hall.

Swanson outlined a trove of disheartening data on Alabama’s troubled hospitals.

In 2022, expenses rose $2.6 billion above pre-pandemic levels, significantly surpassing revenues. Half of Alabama’s hospitals finished with negative operating margins in 2022, Swanson said. Surgeries and emergency department visits continue to lag compared to 2019, the last year before the arrival of COVID-19.

Even though hospitals aren't seeing as many patients, Alabama hospitals are still seeing greater cost pressures in caring for them.

“Hospitals are seeing fewer patients, but they are sicker and staying longer,” Swanson said.

Those patients are requiring more costly medications, he added. Plus, due to staffing shortages at other post-acute care facilities, hospitals are continuing to care for some patients that are ready to be discharged to nursing homes or rehabilitation centers.

Over the past three years, Alabama’s hospitals lost a combined $1.5 billion, even including federal stimulus funds, Swanson said.

“Hospitals faced a profound financial toll in 2022 with no relief in sight,” Swanson said.

Adding to the issues, Alabama’s reimbursement rate from Medicare is the lowest in America, according to the Kaufman Hall report. Alabama hospitals also receive lower reimbursement rates from commercial insurers, the report stated.

Over half of Alabama’s spike in expenses come from labor costs, which are nearly $1.4 billion higher than pre-pandemic levels. Most of that spike - $1 billion - went to increases in employed staff, which is important to understand, Swanson said. Hospitals are paying more to recruit and keep staff.

Alabama hospitals also spent much more on contract labor, an additional $324 million compared to 2019, representing a 447% increase over pre-pandemic levels, according to the Kaufman Hall report.

Hospitals are also paying more for drugs and other supplies. Swanson said

“We don’t expect many of these challenges to abate in 2023,” he said.

“Across the state of Alabama, the situation is quite dire."

‘A statewide issue’

Williamson, the head of the state’s hospital group, said hospitals across the state are facing a perilous situation. He pointed out that some rural hospitals are facing a serious risk of closure, but he said the challenges aren’t confined to Alabama’s smaller communities.

“This isn’t a rural issue, or an urban issue,” Williamson said. “This is a statewide healthcare issue.”

Williamson acknowledged that without the federal COVID-19 relief funds that were distributed earlier in the pandemic, Alabama would probably have fewer hospitals today.

But he said the number is going to shrink unless Alabama’s elected officials direct some American Rescue Plan aid, which has yet to be allocated, to the state’s hospitals. And he said the money wouldn’t solve all the issues.

“What we desperately need is a significant infusion of ARPA funds to serve as a bridge,” he said.

Williamson said he’s hearing from members that are worried about keeping their facilities open. When asked if some hospitals are looking at cutting some services to reduce expenses in an effort to stay afloat, Williamson said such steps tend to do more harm than good for their bottom line.

“While you can cut expenses, you almost inevitably cut revenue,” Williamson said. “It becomes a zero game. It’s actually worse than a zero sum game.”

Hospitals that curb services or close clinics can end up losing more in revenue than they save in the reduced expenses. “It begins a death spiral for your healthcare facilities,” he said.

If some hospitals in Alabama close their doors, residents will have fewer options for healthcare needs, Williamson said. Such closures would have long-term consequences, he said.

“It’s much harder to restart a hospital that’s closed,” Williamson said.